The House and Senate have approved H.R. 5771, the “Tax Increase Prevention Act of 2014” (TIPA), a bill which extends for one year retroactively to January 2014 through the end of 2014 over fifty individual, business and energy tax incentives that expired at the end of 2013. The legislation also includes H.R. 647, the “Achieving a Better Life Experience Act of 2014” (ABLE).
ABLE would amend Code Sec. 529 to create a tax-free savings account for individuals with disabilities. The bill aims to ease financial strains faced by individuals with disabilities by making tax-free savings accounts available to cover qualified expenses such as education, housing and transportation. The bill would supplement, but not replace, benefits provided through private insurances, the Medicaid program, the supplemental security income program, the beneficiary’s employment and other sources.
President Obama signed the legislation into law on Friday December 19, 2014.
Some of the more popular provisions extended by TIPA are:
- Research and experimentation credit (R&D Credit) which is a general business tax credit for companies that are incurring R&D expenses in the United States (Code Sec. 41).
- Work opportunity tax credit which is a credit for companies who hire targeted group employees (Code Sec. 51).
- 15-year straight line cost recovery for qualified leasehold property, qualified restaurant property, and qualified retail improvements (Code Sec. 168(e)(3)(E).
- 50% bonus depreciation which allows taxpayers to deduct 50% of the cost of qualified property place in service from January 1, 2014 through December 31, 2014 (Code Sec. 168(k)).
- Increase in expensing limit, increase in investment based phase-out amount and expanded definition of Section 179 property for certain real property place in service in 2014. This provision increases the expensing limit from $25,000 to $500,000 and the investment base from $200,000 to $2,000,000 on qualifying property placed in service between January 1, 2014 and December 31, 2014 (Code Sec. 179).
- Special 100% gain exclusion for qualified small business stock. This provision allows a taxpayer to exclude from taxable income the gain realized on the sale of qualified small business stock (Code Sec. 1202).
- Reduction in S corporation recognition period for built-in gains tax. A sale of assets by an “S” corporation that formerly was a “C” corporation during the recognition period is subject to a built in gains tax. The recognition period was 10 years and this provision reduces it to 5 years for sales between January 1, 2014 and December 31, 2014 (Code Sec. 1374).
- Tax-free distributions for charitable purposes from individual retirement accounts (IRA) for taxpayers age 70 ½ or older. Taxpayers who wish to donate some of their retirement savings to a charity may make tax-free transfers directly from their IRA to the qualified charity (Code Sec. 408(d)(8)(F)).
TIPA also extended the following individual provisions through 2014:
- $250 above-the-line deduction for certain expenses of teachers (Code Sec. 62(a)(2)(D)).
- Exclusion of up to $2 million ($1 million if married filing separately) of discharged principal residence indebtedness from gross income (Code Sec. 108(a)(1)(E)).
- Parity for exclusion for employer-provided mass transit and parking benefits (Code Sec. 132(f)(2)).
- Deduction for mortgage insurance premiums treated as qualified interest (Code Sec. 163(h)(3)(E)).
- Deduction for state and local sales taxes (Code Sec. 164(b)(5)(I)).
- Above-the-line deduction for qualified tuition and related expenses (Code Sec. 222(e)).
TIPA also extended the following business provisions through 2014:
- Low-income housing 9% credit rate freeze (extended for allocations made before Jan. 1, 2016)(Code Sec. 42).
- Military housing allowance exclusion for determining whether a tenant in certain counties is low-income (section 3005 of 2008 Housing Assistance Tax Act).
- Indian employment credit (Code Sec. 45A).
- New markets tax credit (Code Sec. 45D).
- Railroad track maintenance credit (Code Sec. 45G).
- Mine rescue team training credit (Code Sec. 45N).
- Employer wage credit for activated military reservists (Code Sec. 45P).
- Qualified zone academy bonds (Code Sec. 54E).
- Classification of certain race horses as 3-year property (Code Sec. 168(e)(3)(A)).
- 7-year recovery period for motorsports entertainment complexes (Code Sec. 168(i)(15)).
- Accelerated depreciation for business property on Indian reservations (Code Sec. 168(j)).
- Election to expense mine safety equipment (Code Sec. 179E).
- Special expensing rules for film and television production (Code Sec. 181(f).
- Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico (Code Sec. 199).
- Modification of tax treatment of certain payments to controlling exempt organizations (Code Sec. 512).
- Special treatment of certain dividends of regulated investment companies (RICs)(Code Sec. 871(k)).
- RIC qualified investment entity treatment under FIRPTA (Code Sec. 897(h).
- Exceptions under Subpart F for active financing income (Code Sec. 953, Code Sec. 954).
- Look-through treatment of payments between controlled foreign corporations (Code Sec. 954(c)(6)).
- Empowerment zone tax incentives (Code Sec. 1391).
- Temporary increase in limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands (Code Sec. 7652).
- American Samoa economic development credit (Section 19 of 2006 Tax Relief and Health Care Act).
TIPA extended the following charitable provisions through 2014:
- Enhanced charitable deduction for contributions of food inventory (Code Sec. 170).
- Basis adjustment to stock of S corporations making charitable contributions of property (Code Sec. 1367).
- Special rules for contributions of capital gain real property for conservation purposes (Code Sec. 170(b)(1)(E), Code Sec. 170(b)(2)(B).
TIPA extended the following energy provisions through 2014:
- Credit for nonbusiness energy property (Code Sec. 25C).
- Credit for second generation biofuel producer credit (Code Sec. 40(b)).
- Incentives for biodiesel and renewable diesel (Code Sec. 40A).
- Production credit for Indian coal facilities placed in service before 2009 (Code Sec. 45(e)(10)).
- Credits with respect to facilities producing energy from certain renewable resources (Code Sec. 45(d)).
- Credit for construction of energy efficient new homes (Code Sec. 45L).
- Special allowance for second generation biofuel plant property (Code Sec. 168(l)).
- Energy efficient commercial building deduction (Code Sec. 179D(h)).
- Special rule for sales or dispositions to implement FERC or State electric restructuring policy for qualified electric utilities (Code Sec. 451(i)).
- Incentives for alternative fuel and alternative fuel mixtures (Code Sec. 6426, Code Sec. 6427).
TIPA extended the following provisions for multiemployer defined benefit pension plans through 2015:
- Automatic extension of amortization periods for multiemployer defined benefit pension plans (Code Sec. 431(d)(1)(C).
- Shortfall funding method for plans in endangered or critical status (Sec. 221(c) of the Pension Protection Act of 2006, P.L. 109-280).
The long awaited passage of the “extender provisions” provides planning opportunities for 2014 or confirms planning steps already taken. Please contact any of our tax professionals if you have questions. We would be happy to meet with you to discuss these provisions in further detail.
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